Thursday, August 12, 2010

When I came in to work the owner rushed over to meet me. He told me that he had met a really sharp consultant that he thought could be a huge help with his business, and that he had a meeting with him later that day. I was not a regular employee. I had been hired when my previous employer folded, and I was finishing projects started by them. I had worked closely with this company since the owner was a young man some 15 years ago. He wanted me to sit in on the meeting.

He showed up at the appointed time, wearing a very expensive suit. He exuded success, and pulled out a book filled with business cards from companies he said he had consulted with. His company had an impressive three letter acronym for it's name. I could see why the owner was impressed, but it all seemed vaguely familiar.

The consultant asked a lot of questions, about problem areas the company had, about it's financial situation. Some of his questions indicated he was familiar with the industry, and he indicated his company had a lot of data from the industry which could be used to benchmark this company. He finished up with a promise to return the next day with a summary and a quote for the kind of work they could do to help this company become better run and more profitable. The owner was very pleased and asked me what I thought. I told him that he certainly was very sharp, and we could learn a lot from him.

I worked from home, and stayed two nights a week in a local hotel because I lived too far away to commute daily. That evening I went back to my hotel and researched his company on the Internet. It turned out that the company was familiar to me, from an article in INC. magazine from about 5 years ago. Digging a little deeper I found out that the founder of this consulting firm had been a consultant at another consulting firm, one that had approached me in the same way, nearly 20 years ago! The sales pitch sounded familiar because it was exactly the same pitch I had heard before!

I printed out the INC. magazine article and gave it to the owner the next morning. He read it through, and met the consultant at the door when he showed up. He then gave him and earful and threw him out! The INC. story detailed how so many small businesses had been victimized by this company. The salesman was in fact very sharp, and if he actually came out and worked with you the results probably would have been quite good. But that wasn't why he showed up. His real job was to size up the mark, carefully getting from the owner exactly how much he could pay out of cash flow. That would be the amount that the owner could part with quickly, before he realized he was being taken. If he didn't have the money he'd have to consult with others, and that might expose the game plan. The sad part is, the slick salesman probably knew enough to actually be helpful. They got me for $12K before I pulled the plug!

That night, in my hotel room I decided to play consultant. I knew this company very well. The owners dad was my first big customer when I had my own business. When he and his two brothers wanted to get dad to let them do something they often asked my advice, because dad sometimes took my advice. Sometimes I sided with them, sometimes with dad. So I wrote up an analysis of the employees working there.

I started with the owner, and explained his strengths and weaknesses. He was great on strategy, but tended to lose interest in the day to day operations, causing things to fall apart. The young lady in the office had little bookkeeping experience, didn't take the job seriously and was costing the company a lot of money in taking rebates and discounts from vendors. The head foreman was very knowledgeable about the processes used, but was a poor manager, who preferred to work alone. So, people weren't being trained in their jobs. His younger brother, 21 at the time and working as the maintenance man, had a wonderful attitude and work ethic, the kind every company hopes to find, but few do.

My recommendation was for the owner to take a back seat in the day to day operations of the business. He should focus on the strategic direction of the company. He should let the young girl in the office work out in the plant, which she actually preferred, and replace her in the office with a qualified bookkeeper. The young maintenance man should become the plant manager, and his older brother should now work under him! Sounds crazy eh?

The owner told me later he got angry when he first read my 'consulting report'. His wife however thought I had hit the nail on the head, and encouraged him to try it. She asked me to expand on what I had written, to give them more direction. The 21 year old young man was now running the entire multi-million dollar operation. The business has done very well, and the owner decided to become Mr. Mom to their five kids, when his wife decided to go back to work just for fun. They did hit a snag about 4 years later.

The young manager called me one night and said he was thinking of quitting, because he was having real problems with his older brother. His older brother had been there longer, so he felt he should leave. He wanted to know what I thought. SoI told him the truth. I said that for a young man of his age and education he was extremely well paid. If he left he would take a huge cut in pay, that would take him years to recover from. Worse, it wouldn't save his brother's job. Because the new manager wouldn't put up with his brother for very long. Then he'd be gone because the owner would have little choice but to let him go.

I told him to got to his brother and tell him the truth. Tell him he is a poor employee, you are not going to put up with his problems any more, and that you will fire him if he doesn't straighten up immediately! He did it, and the timing was right. His brother was recovering from a hernia operation, needed because he worked alone, having alienated all the other employees. It has been about two years and things are going well.

Saturday, August 7, 2010

When a business is going in the wrong direction it can be very difficult to change that direction. I refer to this as the Iceberg Theory of Business. Steering a business is a whole lot like trying to steer an iceberg. It has been attempted, using tugboats. A really strange thing happens. The iceberg weighs millions of tons, while the tugboat at best may weigh a few hundred tons. When the tugboat starts pulling against the iceberg coriolis forces due to gravity come into play. The tugboat always points directly away from the iceberg, but it starts to orbit the iceberg no matter how hard they try to steer!

Business is like that too. The CEO may think he's steering, and he's got the throttle down pulling hard. The business though still heads in the direction it was going before. Inertia, an object in motion tends to stay in motion.

When I set up a new manufacturing operation on the other coast I got a chance start from scratch. There wasn't any old culture to fix, just a new one to create. In a previous post I talked about how I insisted that things be done right the first time, not patched or done over. We created lots of new systems for everything we did. Everyone got trained on the systems, including why it was done this way. Then I left, never to return, and 18 years has gone by.

A few weeks ago I get a call from an old customer. It seems he had just purchased some machines from that manufacturing operation for the first time. He called me and said "When I opened the box I just knew you had something to do with this machine!" I asked him what kind of machine it was, and it turned out it was something completely new that they had designed recently. So I asked him what made him think I had something to do with it? He said "The packaging job was incredible, the nicest job he'd ever seen!" I asked him if he was smiling when he saw this? He said "Oh yeah, and I was really excited!" I said that was good because I used to say that we were going for an "Open Box Experience" If the customer opens the box and smiles then things will go well. Even if there is a subsequent problem, they will be much more forgiving and easier to deal with.

I went on to ask him questions about the packing job. Where was the packing list? "Sitting on top with the words DO NOT UNPACK! EVERY THING YOU WILL NEED IS IN THE ORDER YOU WILL NEED IT! right on the envelope." Were there labeled boxes? "Yep, Box 1 was on top, and the rest were in order beneath it" What was in the boxes? "Heat sealed plastic bags that were lettered" How about the packing list? "It was in assembly order, by boxes and bags!" How about screws and such, were they bulk packed? "Nope each assembly had the just the screws for that assembly in the bags. The bags were heat sealed between the screws, nuts, and washers, so you could see exactly what you got" Were you short any parts? "We had exactly the right amount of everything!" Damn, they got it wrong! "What do you mean, we got exactly what we needed?"

Well the way I originally set up the system the quotations were calculated by a complex spreadsheet. We intentionally calculated a percentage overpack on every small item. We considered how difficult the assembly operation was, and how likely one would be dropped and never found, and adjusted the overpack accordingly. Since it was done at the quote stage the customer actually was paying for the spare parts, so it was profitable. The shipping department was instructed to never overpack on their own, it was already done. This process completely eliminated all the calls we would get from irate customers claing we shorted them, and wanting us to deliver overnight at our expense. We knew it was working when customers apoligized for loosing parts, and requested we send them overnight at their expense!

So how did the machines look? "They are beautiful, very well made, with excellent instructions and really work well. We are so sorry we bought seven machines from a competitor last year. Those machines are junk, don't work well, and we were forever getting all the parts they shorted us!" Were those machines a lot cheaper? "No, they were actually more expensive!" So why didn't you buy the new ones first? "Well we asked them for a quote and we got it promptly, but they never followed up. The other guy stopped in here and really schmoozed everybody and told us about how great these machines were, and how many he had sold."

A couple of days later I sent the company I had worked with an email congratulating them on doing a fine job with this customer. I related how this customer raved about their product and their service. Then I told them the real reason I contacted them. You see, they were losing big time, in the same way they were losing when I left. In fact it was the reason I left. After 18 years they still believed that a great product and great service makes sales. Here they were with a great product, great service, up against a guy with a lousy product, and lousy service, and they STRUCK OUT!

You might think that isn't so, because they did get the second sale. However, that was a complete fluke, not of their making. You see the only reason they got the second sale was that this happened to be a very large customer, who really needed many of these machines, more than twice what they had already purchased from both vendors. For 90% of the market, there would be no second purchase! Even worse, they only got a shot at the second sale because the first company totally screwed their customer. Had they done a halfway creditable job and kept the customer mostly happy, inertia would have kicked in. The customer would problably have purchased more, "the devil you are familiar with is better than the one you don't know", "we'll only need to train operators on one machine", and "we'll only need one kind of spares".

At that company, the sales and marketing are still in the hands of same people that were doing it 18 years ago, and inertia is keeping them right on the same old path of missed opportunities. What is really interesting is that the department that produced the machines in question, and is also responsible for packing, shipping and customer support, is still doing the right thing! This is despite that fact that only one person still working there, was there at the beginning, and he isn't a manager. Is inertia in the right direction then just as powerful as the inertia that keeps you moving in the wrong direction?